OVERHEAD
The summation of all indirect material indirect labour and indirect expenses is called Overhead.
It is otherwise known as Burden Cost, On Cost,Supplementary Cost, Non-Productive Cost or Loading.
FEATURES OF OVERHEAD :
(I)It includes all indirect cost.
(ii)Overhead are the operating cost of a business unit.
(iii)Overhead costs represent the costs which are common to several cost units.
(iv) It is charged to all the units of production.
CLASSIFICATION OF OVERHEAD :
Overhead costs are classified into three different types.
A.Element-wise Classification
B.Function-wise Classification .
C.Behaviour-wise Classification
A.ELEMENT-WISE CLASSIFICATION :
(i)INDIRECT MATERIAL :-
The cost of material which can’t be directly. conveniently and accurately allocated to a particular unit of product is called Indirect Material Cost. Example- Nut and bolts, Nells, Bottoms etc.
(ii) INDIRECT LABOUR :-
The labour cost which is not directly engaged in the production of goods but indirect helps in production is called Indirect Labour.
Example – Labour of supervisor, security men, foremen etc.
(iii) INDIRECT EXPENSES :–
The expenses which can’t be identified with a particular product, job or activity are called Indirect Expenses.
Example – Factory rent, insurance premium, lighting, depreciation etc.
B.FUNCTION-WISE CLASSIFICATION :
1.PRODUCTION OVERHEAD :-
The summation of all indirect materials, indirect labour and indirect expenses relating to the production process are called Production Overhead.
It is otherwise known as Manufacturing Overhead, Work Overhead and Factory Overhead.
Example – Oil, Consumable stores, factory rent, lighting etc.
2.OFFICE,ADMINISTRATIVE,OVERHEAD:-
The summation of all indirect material, indirect labour and indirect expenses relating to managerial function of an organisation are called Office or Administrative Overhead.
Example – Office stationery, salary to accountant, rent and rates etc.
3.SELLING OVERHEAD :-
The summation of all indirect materials, indirect labour and indirect expenses relating to the selling function of the business is called Selling Overhead.
Example– Salary to salesman, commission to selling agent, showroom expenses etc.
4.DISTRIBUTION OVERHEAD :
The summation of all indirect material, indirect labour and indirect expenses relating to transferring the material from producer to ultimate consumer are called Distribution Overhead.
Example-Packing,material,carriage,freight, fuel etc.
C.BEHAVIOUR-WISE CLASSIFICATION
(i)FIXED OVERHEAD :-
The overhead expenses that remain fixed or unchanged irrespective of change in volume of output is called Fixed Overhead.
Example – Salary of office & staff, rent of office building, insurance etc.
(ii)VARIABLE OVERHEAD :-
The overhead expenses which vary directly with the change in volume of output is called Variable Overhead.
Example- Indirect,material,salesman,commission, power, fuel etc.
(iii) SEMI -VARIABLE OVERHEAD :-
The overhead expenses which are partly fixed and partly variable are called Semi Variable Overhead.
Example – Telephone charges, electric bill, wages of service department etc.
ALLOCATION
Allocation means the allotment or charging of the whole item of cost to the cost center and cost unit ..
APPORTIONMENT
Apportionment means allotment or charging of a proportion of items of cost to the cost center and cost unit.
Allocation
1.Allocation means the allotment of the whole item of cost to the cost center and cost unit.
2.Under it cost is directly allocated to any cost center or cost unit.
3.Allocation deals with the whole item of cost.
4.Cost is allocated when the cost center uses the whole of the benefit.
Apportionment
1.Apportionment means allotment of proportion of item of cost to cost center and cost unit.
2.Under it cost is allocated to the cost center or cost unit on a suitable basis.
3.Apportionment deals with only a proportion of cost.
4.Cost is apportion when the cost center uses only a proportion of benefit.
PRIMARY DISTRIBUTION :
The allocation and apportionment of overhead expenses among the production and service department is called Primary Distribution.
SECONDARY DISTRIBUTION :
The re-apportionment of overhead expenses of the service department to the production department is called Secondary Distribution.
